beckerlawyers.ca vancouver franchise show september 23, 2012 legal aspects of purchasing a franchise
TRANSCRIPT
Beckerlawyers.ca
Vancouver Franchise Show
September 23, 2012
Legal Aspects of Purchasing a Franchise
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Presenter
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Eric Mollema
BProc LLM
20 years legal experience
15 years of franchising experience
20 years of business experience
Short bio
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Franchising
YOU MUST KNOW WHAT YOU ARE GETTING INTO
Franchising is the practice of using another Company’s successful business model to your own benefit; or
Franchising is:A form of business organization (franchised business)
in which a Company that already has a successful product or service (the franchisor)
enters into a continuing contractual relationship (franchise agreement)
with other businesses (franchisees)
operating under the franchisor's trade name (license)
and usually with the franchisor's guidance (training)
in exchange for a fee. (royalty)
You have to pay monthly royalties – that is what franchising is about
You cannot say “What is the franchisor doing for me?” when you are using its setup
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Franchise Legislation
BC is different…
Franchise Legislation inAlberta
Manitoba
Ontario
New Brunswick
Prince Edward Island
Acts focus on the protection of the Franchisee through disclosure
Other provinces? For information purposes only!
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USA - Franchising commands 43% of total retail sales and service dollars
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Legal Process
Disclosure
Non Disclosure Agreement
Franchise Application
Franchise Agreement
Pre-purchase Investigations – 12 things to look out for:
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Reasonable initial franchise fee
Other fees & costs
Sufficient training
Success of other franchisees
Is there a satisfactory exit strategy
Profitability
Compatibility of Franchisor & Franchisee
Not too much competition
Good location
Risk of the venture
Large enough territory
Sufficient working capital
Most legal problems stem from insufficient pre-investigation
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What must be disclosed
Material information about the franchise networkFranchisor information
Financial information
Financial statements
Operational information
Rights & Obligations of Franchisor and Franchisee
Current & past franchisees
All arrangements regarding the relationship
The prospective franchisee must be able to make a 100% informed decision
Disclosure
95-97% of all franchises are still in business after 5 years
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Each franchise network has a very specific franchise agreement
No two franchise agreements are the same
Franchise agreements are based on common franchise principles and will “look the same”.
However BEWARE, they are not!
Franchise Agreement
There is no such thing as a “standard franchise agreement”
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Parties
Grant
Term
Fees
Costs
Payment
Franchisee Acknowledgements
Exclusivity
Franchisor Obligations
Performance requirements
Store location & Lease agreements
Leasehold improvements
Operation of the Franchised Business
Territory
Copyright
Manual & Confidentiality
Franchise Agreement
62.2% of all new USA businesses fail within 6 years
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Advertising
Marks
Accounting, Records, Reports, Audits and Inspections
Insurance
Restrictive covenants and trade secrets
Start-up package
Sale, assignment and transfer
Control of the Franchise
Security for Payment
Frustration of the Agreement
Substitution
Death or Incapacity
Termination
Guarantor’s covenants
General
Schedules
Franchise Agreement
1 in 12 establishments is a franchise
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What are the requirements of the Franchisor
If an incorporated company is requiredWho will the directors be?
Who will the shareholders be?
Name reservation
Incorporation of the company
Articles of Incorporation
Optimal Share Structure
Accountant input
Shareholders Agreement
Loan Agreements
Security documents
Employment Agreements
Registrations & Records Office
Start-up copyrights
Who is the purchaser
A new franchise opens every 8 minutes of every business day
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Lease
Lease agreement
Employees
Letters of Appointment
Employment agreements
Business licenses
Other legal matters
An average franchise employs between 8 – 14 staff
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Do not go it alone!
Ask an expert! It is part of the investment in your franchise!
Learn as much about franchising as you can.(Read the hand-out: “Buying a Franchise is like getting married”)
Ask questions (Questions to ask your franchisor)
Tips of the day
USA franchise sales total over 1 Trillion per year
